Mixed messaging: On India as an investment destination(The Hindu)

Mains Paper 2: Governance 
Prelims level: FDI policy 
Mains level: Government policies and interventions for development in various sectors and issues arising out of their design and implementation

Context: 

• Prime Minister last week elaboratelypitched India as an investment destination that could serve as a manufacturing hub at the heart of global supply chains.

Exploring supply-chain synergies:

• The pitch made at the U.S.-India Strategic Partnership Forum comes in the backdrop of the government’s keenness to lurepotential investors, especially those looking to relocate from China, to India.
• This tack is consistent with recent initiatives to explore supply-chain synergies with other economies, including Japan, as an escalating border feudcasts a shadow over India’s economic and trade ties with China.
• The reasoning appears to be that if even a few multinational enterprises can be drawn to set up manufacturing bases, either by shifting facilities or as new additional plants, then not only does the Indian economy stand to gain FDI, new jobs and tax revenue but it also makes a statement.
• Clearly, officials must have advised Mr. Modi that U.S. businesses were the ideal target given the worsening relationship between Washington and Beijing and the ongoing trade stand-off between the world’s two largest economies.
• On the face of it, the approach seems inarguably sound. The rub, however, lies in the government’s recent ‘Aatmanirbhar Bharat’ initiative, of making India more self-reliant.

Import substitution:

• Over the decades, it has been established that global FDI investors prioritise and are even willing to pay a premium for policy stability and largely barrier-free access to local and international markets.
• The drive for self-reliance has spurred several Ministries to urge companies and industry sectors to replace imports with ‘Made in India’ substitutes.
• From the Shipping Ministry’s call for the design and manufacture of indigenous tugboats to auto component makers being told to abjureforeign parts, the thrust of the initiative is evidently ‘import substitution’.
• It is hard to imagine any potential foreign investor in manufacturing being ready to source capital goods locally — assuming they are available — even at the cost of possibly compromising on quality or price or both.
• Betraying the government’s anxiety, Mr. Modi took pains to stress that the push for self-reliance should not be interpreted as India turning its back on the world.
• Separately, from the market access perspective, India’s decision to not join the RCEP multilateral trade pact would put investor companies seeking to tap consumers in RCEP member countries at a tariff disadvantage.
• Interestingly, most of the recent FDI announcements have been by way of stake acquisitions in existing businesses, and predominantly in the services sector.
• Attracting FDI into manufacturing will require the government to convince investors that it is committed not merely in words but in deeds as well to an open, barrier-free global trade and investment order.

Conclusion:

• India’s efforts to attract capital will not result in a flood of FDI till investors see policy stability.

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Prelims Questions:

Q.1) With reference to the India and Finland relations, consider the following statements:

1. MoU signed between Indian and Finland for cooperation in the field of Geology and Mineral Resources.
2. It was signed between Geological Survey of India (GSI), Ministry of Mines and Geological Survey of Finland, Ministry of Employment and the Economy, the Government of Finland.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: C

Mains Questions:

Q.1)What is Foreign Direct Investment? What are the recent measures taken for enhancing the FDI incomings, data related to FDI, and how this FDI will benefit the nation?